Detailed comparison of various clioices for inventory accounting. Hartison Corporation commenced retailing operations on January I , Year I . It made purchases of merchandise inventory during Year I and Year 2 as follows:

Hartison Corporation sold 1,800 units during Year 1 and 2,800 units during Year 2.
The firm uses a periodic inventory system.

a. Calculate the cost of goods sold for Year 1 using a FIFO cost flow assumption.

b. Calculate the cost of goods sold for Year 1 using a LIFO cost flow assumption.

c. Calculate the cost of goods sold for Year 1 using a weighted-average cost flow assumption.

d. Calculate the cost of goods sold for Year 2 using a FIFO cost flow assumption.

e. Calculate the cost of goods sold for Year 2 using a LIFO cost flow assumption.

f. Calculate the cost of goods sold for Year 2 using a weighted-average cost flow assumption.
g. For the two years taken as a whole, will FIFO or LIFO result in reporting the larger net income? What is the difference in net income for the two-year period under FIFO as compared with LIFO? Assume an income tax rate of 40 percent for both years.
h. Which method, LIFO or FIFO, should Hartison Corporation probably prefer and why?

Transcribed Image Text:

1/10/Year 1 6/30/Year 1 10/20/Year 1 Total Year 1 Quantity Purchased Unit Price Acquisition Cost 1,200 $10 $12,000 700 12 400 13 2,300 8,400 5,200 $25,600 (continued)